Free trade and China

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With two free trade agreements coming into effect at the start
of the new year - one with the US and the other with Thailand - the
focus now shifts to China, with the results of a feasibility study
by Australia and China into establishing a similar agreement due in
the next few months.

The free trade agreement with the US took several years to
finalise and was subject to last-minute change, and there is no
reason a deal with China would be any less fraught. Australian
industry is wary of giving China, the world's lowest-cost
manufacturer, open slather in the Australian market. Imports from
China are surging, as are our exports to China, sufficiently to
elevate China to Australia's third-largest trading partner.

For China, free trade agreements are not just economic: there is
a political undertone of seeking to extend its clout within the
Asia-Pacific region. In part, this is aimed at providing a bulwark
against the US and at isolating Taiwan, while also creating a
platform for its greater political and military involvement in the
region. This will, naturally, pressure existing military and
defence arrangements.

Free trade talks with Australia come as China is pursuing
similar agreements with a host of countries, from Singapore to
Japan, Korea, Chile and Pakistan. The list goes on. Last month,
China and members of the Association of South-East Asian Nations
(ASEAN) signed an accord to create the world's largest free trade
area, by removing tariffs by 2010 to create a trading bloc to rival
Europe and North America.

Australia and China have been looking into establishing a free
trade agreement since late 2003. The lack of transparency of
China's legal and regulatory systems are concerns, although a free
trade deal should provide better access to China's financial and
services sectors, which will be increasingly important as
Australia's investment in China grows.

It's worth recalling that in 1905 Japan defeated Russia in the
Russo-Japanese war, sending shock waves through the West: this was
the first time a European power had been humbled militarily by an
Asian country, forcing a shift in the power structures of the
day.

Now, 100 years on, China's economic rise is challenging Japan's
economic position in the region, with renewed sparring between the
two, most recently over the discovery of a Chinese submarine in
Japan's territorial waters off Okinawa. Japan is struggling with
how to redefine its relations with China, as indeed is South
Korea.

This is the backdrop to the talks under way between Australia
and China. Unlike some countries in the region, Australia has not
been involved in a dispute with China. Perhaps until we have, we
will not fully understand what may be at stake.

The shifting climate for change

In 1798 a short essay was published anonymously in London that
attempted, for the first time, to shift doomsday prophecies out of
the realm of the "wrath of God" and into scientific debate.

Its underlying thesis - that the impact of human activity on the
environment upon which life depends would, inevitably, lead to
disaster - has been debated hotly ever since. The author, later
revealed to be Thomas Malthus, envisaged a simple but catastrophic
divergence.

Population was increasing exponentially and would outstrip the
Earth's capacity to produce food, thus limiting human progress. The
modern climate-change debate is also about the limits to which
humanity can push the planet, although the science is far more
complex than Malthus's superseded views on food security. What is
less complicated is the scientific consensus that global
temperatures are rising, with potentially ominous consequences.

The federal Environment Minister, Ian Campbell, seems an
unlikely champion for the cause of climate change. Australia is not
a signatory to the Kyoto protocol, the first international
agreement to attempt to tackle the sharp, and alarming, increasing
in greenhouse gases - which many scientists blame for rising
temperatures and extreme weather cycles. Yet, Mr Campbell's clear
articulation of the dangers of climate change for Australia, and
the world, suggests Canberra is seeking to repackage its dented
environmental image. Instead of criticising Kyoto from the
sidelines, Australia now concedes there must be a bigger, better
agreement in the near future - and Canberra and Washington must be
included. The turning point seems to be Mr Campbell's new mantra
that climate change is real. It's time, he says, for the sceptics
to take their heads out of the sand. The Australian economy is
energy intensive, which will always present a barrier to emissions
reductions. But the Australian business community must engage.

How a proactive Australia might influence the global debate
while remaining outside the Kyoto protocol is less clear. When
Kyoto comes into force in February, the world's industrial nations,
excluding Australia and the US, will be committed to a collective
reduction in greenhouse gas emissions to 5.2 per cent less than
1990 levels. The Kyoto protocol is far from perfect, but Australia
cannot hope to wield any influence unless it can demonstrate an
alternative, effective path. Climate modelling suggests rising
global temperatures will reduce rainfall in subtropical regions,
affecting much of Australia. The new year's reading for Warragamba
Dam offered no contradiction, despite recent Sydney rain. At just
38.6 per cent of capacity, it is the lowest level recorded.